First Light News: Risk Rally on Resurgent Fed Rate-Cut Optimism

The S&P 500 added 1.6% and VIX futures eased back to around 20, reflecting reduced demand for protective puts. The Nasdaq 100 also rose 2.6%, and the Dow Jones Industrial Average climbed 0.4%.

Dovish Fed Calls Shift Market Pricing

A chorus of dovish commentary has prompted money markets to reprice the odds to 70% (18 bps implied) that the Fed will lower the target rate next month. This marks a notable shift from the recent 30% chance.

Things took a dovish turn following comments from New York Fed President John Williams on Friday, who said that a rate cut remains a possibility. Fed Governor Christopher Waller also continues to advocate for additional Fed easing in December – a stance also echoed by San Francisco Fed President Mary Daly amid softness in the jobs market.

I think it is important to highlight that, although Daly is not a current voting member, I do not recall a time when she has publicly pushed back against Fed Chair Jerome Powell.

Benefitting from the bid in risk yesterday were Cryptocurrencies, with Bitcoin, Ethereum, Ripple, and Litecoin all on the front foot versus the USD by 4.4%, 7.2%, 8.7%, and 4.2%, respectively.

In the FX space, bids and offers were largely even for the USD – printing a third consecutive daily indecision candle on the USD Index – while US Treasury yields were lower across the curve; the benchmark 10-year yield fell to just shy of 4.00%.

Meanwhile, Spot Gold and Oil versus the buck were up by 1.7% and 1.6%, respectively.

US Data in Focus

The day ahead includes the US September PPI inflation figures and retail sales data.

As shown in the LSEG calendar below, both MM and YY prints for headline PPI are expected to have increased by 0.3% (from -0.1% in August) and 2.7% (from 2.6%), respectively.

As for retail sales data, economists expect a moderation across key measures. MM is expected to come in at 0.4%, down from 0.6%, while retail sales excluding autos are forecast to report 0.3%, from 0.7%.

Wednesday: Budget, Central Banks, and Labour Data

Wednesday will be an interesting session, with October Aussie inflation numbers out first thing, closely shadowed by an update from the RBNZ – expected to reduce the official cash rate by 25 bps.

The spotlight for the day, however, will be on UK Chancellor Rachel Reeves, who will deliver her Autumn Budget at around 12:30 pm GMT. I put together here a more detailed preview for this event in the week ahead.

Also of interest, of course, will be the US weekly jobless claims numbers for the week ending 22 November, which take on added importance given the recent dovish Fed rate repricing.

Written by FP Markets Chief Market Analyst Aaron Hill